We’d been hearing rumors about it for the past couple of weeks, and Apple finally announced, yesterday, the acquisition of Beats Electronics for the sum of $3 billion. I’ve written about my thoughts about an Apple acquisition of Beats, and I remain perplexed by the deal. Beats is a profitable company, with sales of around $1.5 billion a year. Yet valuing the company at $3 billion seems excessive.

That there may be synergies between Apple and Beats is certainly possible. As I wrote a couple of weeks ago, I don’t see Beats’ headphones as fitting with Apple’s design aesthetic. However, they are very popular, among a certain demographic. As for the music subscription service, it’s clear that Apple wants to get into that game, and they appreciate Beats Music. But is all of that really worth $3 million?

In the end, is the Beats price tag realistic, or was it a reflection of other high-priced purchases recently in the tech sector? Remember, Google paid nearly $1 billion for Waze, and $3.2 billion for Nest. Yahoo paid more than $1 billion for Tumblr. Facebook spent $1 billion on Instagram, $2 billion on Oculus Rift, and the astounding sum of $19 billion for WhatsApp.

Granted, Apple is getting two top-level executives, but the $3 billion price tag still seems a bit high. I wonder how much of it is the real value of the company, and how much of this cost is driven by the fact that we are seeing many multibillion-dollar acquisitions and that Apple has boatloads of money to spend.

In any case, I’m looking forward to seeing what Apple does with Beats. I’m sure they will maintain the Beats brand for headphones, probably changing it just slightly to Beats by Apple. As for the music subscription service, that will certainly see the light as part of iTunes. We’ll have to wait a while for all this to happen, though, because, as Apple said, the deal won’t be completed until the end of Q4; that’s the end of September.

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4 Comments

Good deal for Apple. If Beats really is as profitable as some people seem to think, the acquisition will likely pay for itself within a few years. Plus Apple gets a ready-made streaming platform that can compete with Spotify and re-invigorate their declining presence in the music business. Not to mention the talent Apple gains, and the potential for Iovine in particular to help them move forward in another important area where they are currently stalled: TV.

Also, Apple needs another service to have to “shoehorn” into their already broken Identity Management system like they need a hole in the head. Hopefully they are already working on fixing the Mac.com…uh MobileMe…uh iTunesID…uh AppleID IdM so that it accommodates other systems like Beats as part of the rumored iTunes Store redesign. They surely need it. It is starting to get as bad with Apple and their silo’d IDs as it got with AT&T Wireless/Cingular/AT&T (“Oh, you are on the ‘Blue System’, so I can’t pull up your account; I’m on the ‘Orange System’ and I will have to transfer you”, after already having spent 30 minutes on hold.)

Having done extensive work on IdM, I can attest that IdM is hard. More problematic, many software designers and project managers tragically miscalculate both the importance of and work effort required to get to a good, functional IdM system. (When you produce an IdM that KEYS on last name, completely ignoring that a large segment of the userbase is women who potentially will marry and change their last names, you’ve REALLY screwed up! But try to argue against that design decision in a Requirements meeting with a room full of “brogrammers”; it is lost upon them.)